MNI ASIA MARKETS ANALYSIS: Reversing Overnight Risk-Off Tone

US TSY SUMMARY

• Decent early volumes (TYU >600k) petered out soon after, TYU trading an additional 325k to 975k by the closing bell as rates held to a narrow range. Current 10YY 1.2846% vs. 1.2196% low; 30YY 1.9346% vs. 1.8545% low.
• Tsy futures bounce slightly off lows, still holding narrow overall range after the $60B 2Y (91282CCN9) note draws 0.213% vs. 0.215% WI. Bid-to-cover was 2.47x, shy of the 5 month average of 2.52x. Indirect take-up climbs to 52.76% from 50.63% in June (51.85% 5M avg); direct bidder take-up of 21.26% continues to outpace the 5M avg of 16.92%; primary dealer take-up recedes to 25.98% vs. 5-month average of 31.23%.
• Usually muted around earnings cycles let alone the FOMC, markets say a decent pick-up in swappable corporate issuance noted: $2.5B #Temasek ($750M 10Y +40, $750M 20Y +65, $1B 40Y +85) and $1.5B Royal Bank of Canada ($850M 3Y +30, $650M 3Y FRN/SOFR+36).
• The 2-Yr yield is down 0.4bps at 0.1941%, 5-Yr is down 0bps at 0.7117%, 10-Yr is down 0.2bps at 1.2746%, and 30-Yr is up 1bps at 1.9248%.

MONTH-END EXTENSIONS: Preliminary Barclays/Bbg Extension Estimates for US

Preliminary forecast summary compared to avg increase for prior year and same time in 2020. TIPS 0.16Y; US Gov infl-linked 0.23Y.

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

• O/N +0.00087 at 0.08100% (-0.00562 total last wk)
• 1 Month +0.00112 to 0.08725% (+0.00250 total last wk)
• 3 Month +0.00275 to 0.13163% (-0.00537 total last wk) ** (Record Low: 0.11800% on 6/14)
• 6 Month -0.00125 to 0.15725% (+0.00637 total last wk)
• 1 Year -0.00275 to 0.23863% (-0.00075 total last wk)

• Daily Effective Fed Funds Rate: 0.10% volume: $68B
• Daily Overnight Bank Funding Rate: 0.08% volume: $245B

• Secured Overnight Financing Rate (SOFR): 0.05%, $861B
• Broad General Collateral Rate (BGCR): 0.05%, $370B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $345B
• (rate, volume levels reflect prior session)

• TIPS 1Y-7.5Y, $1.999B accepted vs. $3.403B submission
• Next scheduled purchases
• Tue 7/27 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
• Wed 7/28 No buy-operation scheduled due to FOMC
• Thu 7/29 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
• Fri 7/30 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B

FED: Reverse Repo Operations

NY Fed reverse repo usage bounces to $891.203B from 70 counterparties vs. $877.251B on Friday (compares to June 30 record high of $991.939B).

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +4,000 short Sep 99.75 calls vs. 99.705/0.30%
• +5,000 Blue Dec 97.00/97.50/98.00 put flys, 2.0 vs. 98.73/0.05%
• Overnight trade
• 4,500 Green Dec 98.75/98.87 put spd svs. 99.50 calls
• 3,000 Green Aug 98.93/99.00/99.06/99.18 put condors
• 3,250 Green Aug 98.93 puts, 1.0
• 1,500 Green Aug 99.00/99.12 2x1 put spds
• 3,500 Green Sep 98.75/99.00 put spds vs. 99.50/99.62 call spds
• 2,000 Blue Oct 97.37/97.75/98.12 put flys

• 2,000 TYU 133/133.5/134 put flys, 4
• Update, over 10,100 FVU 125 calls, 11-12.5
• total >10,000 TYU 135 calls-36
• Overnight trade
• 12,500 TYU 132.5 puts, 11-14
• 5,000 wk5 TY 133 puts, 2
• 10,000 FVU 123 puts, 3.5-4

EGBs-GILTS CASH CLOSE: Yields Drift Higher After Morning Rally

Gilts strengthened with bull flattening though finished well off best levels, with Bunds ending relatively flat, in a fairly directionless session to start the week.

• Weak equities (led by Asia) overnight and disappointing German IFO numbers set a bullish tone early in the session, though this reversed as equities found a footing and yields drifted toward Friday's highs.
• In the end bonds were rangebound, with Gilts outperforming, and periphery spreads modestly wider.
• Today, Belgium sold E3.1bln of OLOs. Tuesday, Italy sells up to E3.75bln of short-term BTP; UK sells GBP3bln of Oct-26 Gilt.
• The only scheduled central bank speaker Tuesday is ECB's de Cos.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 0.7bps at -0.733%, 5-Yr is up 0.1bps at -0.703%, 10-Yr is up 0.2bps at -0.418%, and 30-Yr is up 0.3bps at 0.064%.
• UK: The 2-Yr yield is up 0.1bps at 0.08%, 5-Yr is down 0.1bps at 0.278%, 10-Yr is down 1.3bps at 0.571%, and 30-Yr is down 1.4bps at 0.991%.
• Italian BTP spread up 0.9bps at 104.7bps / Spanish up 0.7bps at 69.8bps

OPTIONS/EUROPE SUMMARY: Resuming Euribor 1x2 P/S buying

Monday's options flow included:

• DUU1 112.20/112.10 put spread bought for 1 in 5k
• DUU1 112.30/112.20/112.10 put fly bought for 2.5 in 7k
• OEV1 136.00 calls sold at 25 in 8k
• 2RZ1 100.375^ sold at 11.75 in 2k
• 3RU1 100.25/100.125 1x2 put spread bought for 0.5 in 4.5k (underlying: ERU4 100.325). Note that this a reduction in premium vs trades last week at 1 in ~25k
• TYU1 132.50 puts bought for '11 in 5k (delta -16% - expiry in 32 days)

FOREX: Softer Greenback Extends GBP Bounce

• The US dollar lost ground on Monday with the DXY 0.36% worse off. Initial two-way price action was trumped by a bout of greenback supply following the US cash equity open, where US indices breached Friday's highs, largely ignoring the sharp drawdown in Chinese equities overnight.
• Factoring in the lack of cross-region follow through and the strong performance of commodity indices, AUD and NZD reversed early losses, to trade in the green. Additionally, a buoyant EURUSD broke back above 1.18, honing in on the ECB highs at 1.1830.
• The weaker dollar aided further GBP strength in the latter half of Monday, with GBPUSD (+0.55%) taking out initial resistance at 1.3790 and trading to highs of 1.3833. Local press have highlighted the recent downtick in case growth despite economic re-opening. Showing the effectiveness of vaccines, case growth has slowed before any catch-up in hospitalisation or fatality statistics, bolstering the sterling recovery. The next level of note is the 50-day EMA at 1.3887.
• The market's attention is starting to focus on the July Fed statement and press conference, due on Wednesday. The FOMC will use the July meeting to debate its strategy to taper asset purchases (including timing, pace, and composition).
• Bank of Japan's Governor Kuroda is due to speak overnight at an online event hosted by the Japan National Press Club. RBA's Debelle will then speak at the FX Markets USA online conference with a Q&A expected.
• In terms of data, US durable goods orders and consumer confidence headline a light Tuesday docket.

FOREX/Expiries for Jul27 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1725(E805mln), $1.1740-50(E1.4bln), $1.1775(E516mln), $1.1825(E813mln), $1.1850-70(E1.4bln)
• USD/JPY: Y109.00($1.1bln), Y109.50($740mln), Y111.00($632mln)
• AUD/USD: $0.7520(A$851mln)
• USD/CAD: C$1.2380-00($1.2bln), C$1.2600($550mln)
• USD/CNY: Cny6.4815($830mln)

PIPELINE: $2.5B Temasek, $1.5B Royal Bank of Canada Launched

• Date $MM Issuer (Priced *, Launch #)
• 07/26 $2.5B #Temasek $750M 10Y +40, $750M 20Y +65, $1B 40Y +85
• 07/26 $1.5B #Royal Bank of Canada $850M 3Y +30, $650M 3Y FRN/SOFR+36
• 07/26 $1.5B Novelis Corp 5NC2 3.5%a, 10NC5 4.125%a, later today
• 07/26 $Benchmark Adani Ports 10.5Y +255a, 20Y 5.0%a
• 07/26 $Benchmark AutoNation 7Y +100a, 10Y +120a
• 07/26 $1B Jefferies Finance 7NC3 investor call
• Later in week:
• 07/28 $2.75B Air Canada 5NC, 8NC4.5, investor calls Monday
• 07/?? $1.5B Venture Global 8NC, 10NC

EQUITIES: Stocks Recover Off Shaky Start

• Equities started the session on shaky footing, after a sharp drawdown in Chinese equities overnight led to a negative morning across European cash and US futures markets. This sentiment soon reversed, however, with dip-buying once again helping US names rise back above water.
• Strength in energy and materials sectors underpinned the recovery in the S&P 500, while healthcare and real estate were the worst performers.
• European indices were more mixed, with underperformance in Germany's DAX countered by strength in Spanish and Italian markets.
• Corporate earnings season remains a focus, with Tesla due after-market and Apple, Alphabet, General Electric and Visa on the docket for Tuesday.

COMMODITIES: Oil Benchmarks Off Highs, But Well Above Support

• Monday trade across energy and metals markets was subdued, with WTI and Brent crude futures in minor negative territory. Despite the modest downtick in oil benchmarks, support was untroubled, keeping the technical picture intact.
• For WTI, price is testing the 61.8% retracement of the Jul 6 - 20 downleg at $71.85. A breach of this retracement would strengthen a bullish case and place on hold the recent bearish theme. This would signal scope for a climb towards key resistance at $76.07, the Jul 6 high. A reversal lower would refocus attention on $65.01, Jul 20 low and the key support.
• Gold is consolidating and remains below $1834.1, Jul 15 high. The outlook remains bullish and the recent pullback is considered corrective. Price however needs to clear $1834.1, Jul 15 high to confirm a resumption of the bull cycle. Support to watch is at $1791.7, Jul 12 low that was probed briefly on Friday.